Purchase Solution

Swap arrangements with financial futures contracts to manage risk

Not what you're looking for?

Ask Custom Question

Assess the benefits and costs of using swap arrangements with financial futures contracts as a tool for managing the companies risk.

Purchase this Solution

Solution Preview

The problem wants you to understand what a swap arrangement is and how it helps a company to reduce risk. Swap arrangement means that the company enters into two transactions today one for buying and one for selling at the futures rates available today. The purpose is that if there is a fluctuation in the price in future then the profit cancels out the loss and the net result is that the company manages to get its deal without undue loss or profit from market fluctuation. Consider the following example. A company is starting a project now, which will take four years to complete; it needs a loan of one billion dollars at the end of one year. However it has to complete its tender form today and determine the cost of the project today. Now during the course of two years interest rates may fluctuate and either lead to unexpected profits or unexpected losses. The company is not in the business of ...

Purchase this Solution

Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.